**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**Form 10-Q**

 

| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                    |
| **For the  quarterly period ended March 31, 2008** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom            to**

** **

**Commission File Number0-191551**

** **

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**Atlantic Tele-Network, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **47-0728886**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification Number) |

 

**10 Derby Square**

**Salem, MA 01970**

**(978) 619-1300**

** **

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer x          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

 

As of May 9, 2008, the registrant had outstanding15,230,797****shares of its commonstock ($.01 par value).

 

 

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**ATLANTIC TELE-NETWORK, INC.**

 

FORM 10-QQuarter Ended March 31, 2008

 
| CAUTIONARY STATEMENT REGARDING FORWARD LOOKING  STATEMENTS |                                                                                                     |
|------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                     |   |
| PART I—FINANCIAL INFORMATION                     |                                                                                                     |
|                                                       |                                                                                                     |   |
| Item 1                                                | Unaudited  Condensed Consolidated Financial Statements                                                   | 4 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Balance Sheets at  December 31, 2007 and March 31, 2008                 | 4 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Statements of Operations for the  three months ended March 31, 2007 and 2008 | 5 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2007 and 2008 | 6 |
|                                                       |                                                                                                     |   |
|                                                       | Notes to Unaudited Condensed Consolidated Financial  Statements                                          | 7 |
|                                                       |                                                                                                     |   |
| Item 2                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations              | 15 |
|                                                       |                                                                                                     |   |
| Item 3                                                     | Quantitative  and Qualitative Disclosures About Market Risk                                              | 26 |
|                                                       |                                                                                                     |   |
| Item 4                                                     | Controls and  Procedures                                                                                 | 26 |
|                                                       |                                                                                                     |   |
| PART II—OTHER  INFORMATION                       |                                                                                                     |
|                                                       |                                                                                                     |   |
| Item 1.                                                    | Legal Proceedings                                                                                        | 27 |
|                                                       |                                                                                                     |   |
| Item1A                                                     | Risk  Factors                                                                                            | 27 |
|                                                       |                                                                                                     |   |
| Item 6.                                                    | Exhibits                                                                                                 | 27 |
|                                                       |                                                                                                     |   |
| SIGNATURES                                                 | 28                                                                                                       |
|                                                       |                                                                                                     |   |
| CERTIFICATIONS                                             |                                                                                                     |

 

2

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**Cautionary StatementRegarding Forward-Looking Statements**

 

ThisQuarterly Report on Form 10-Q (or the “Report”) contains forward-lookingstatements relating to, among other matters, the future financial performanceand results of operations of ATN and its subsidiaries, including the relativecontributions of Commnet and Sovernet; the competitive environment in our keymarkets,  demand for our services andindustry trends; the outcome of litigation and regulatory matters; ourcontinued access to the credit and capital markets; the pace of our networkexpansion and improvement, including our realization of the benefits of theseinvestments; and management’s plans and strategy for the future.  These forward-looking statements are based onestimates, projections, beliefs, and assumptions and are not guarantees offuture events or results.  Actual futureevents and results could differ materially from the events and resultsindicated in these statements as a result of many factors, including, amongothers, (1) significant political and regulatory risk facing our exclusivelicense to provide local exchange and long distance telephone services inGuyana; (2) any significant decline in the price or volume ofinternational long distance calls to Guyana; (3) increased competitionaffecting our businesses; (4) the regulation of rates that GT&T maycharge for local wireline telephone service; (5) significant tax disputesbetween GT&T and the Guyanese tax authorities; (6) the derivation of asignificant portion of our U.S. wireless revenue from a small number ofcustomers;  (7) our ability tomaintain favorable roaming arrangements; (8) economic, political and otherrisks facing our foreign operations; (9) regulatory changes affecting ourbusinesses; (10) rapid and significant technological changes in thetelecommunications industry; (11) our reliance on a limited number of keysuppliers and vendors for timely supply of equipment and services relating toour network infrastructure; (12) any loss of key members of management; (13)the adequacy and expansion capabilities of our network capacity and customerservice system to support our customer growth; (14) dependence of our wirelessand wireline revenues on the reliability and performance of our networkinfrastructure; (15) the occurrence of severe weather and natural catastrophes;and (16) our ability to realize the value that we believe exists in businessesthat we acquire. These and other additional factors that may cause actualfuture events and results to differ materially from the events and resultsindicated in the  forward-lookingstatements above are set forth more fully under Item 1A “Risk Factors” of ourAnnual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”), which ison file with the SEC.  We undertake noobligation to update these forward-looking statements to reflect actualresults, changes in assumptions or changes in other factors that may affectsuch forward-looking statements.

 

In this Report the words “we,” “our,” “ours” and “us”refer to Atlantic Tele-Network, Inc. and its subsidiaries, unless thecontext indicates otherwise. ClearChoiceTM is a service mark of one of oursubsidiaries. This Report also contains other trademarks, service marks andtrade names that are the property of others.

 

Reference to dollars ($) refer to U.S. dollars unlessotherwise specifically indicated.

 

3

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**PART I—FINANCIAL INFORMATION**

 

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

 

**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)****(Dollars in thousands, except per shareamounts)**

 
| ** **                                                                                                                                                                                      | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                      | ** ** | **2007**              | ** ** | **2008**           | ** ** |
| **ASSETS**                                                                                                                                                                                      |       |                  |       |               |       |
| Current Assets:                                                                                                                                                                                 |       |                  |       |               |       |
| Cash and cash  equivalents                                                                                                                                                                      |       | $                     | 71,173     |               | $          | 74,561 |   |
| Restricted cash                                                                                                                                                                                 |       | 4,831                 |       | 3,307              |       |
| Marketable  securities                                                                                                                                                                          |       | 5,280                 |       | 5,346              |       |
| Accounts  receivable, net of allowances                                                                                                                                                         |       | 27,357                |       | 26,610             |       |
| Materials and  supplies                                                                                                                                                                         |       | 4,747                 |       | 6,976              |       |
| Prepayments and  other current assets                                                                                                                                                           |       | 4,987                 |       | 4,903              |       |
| Total current  assets                                                                                                                                                                           |       | 118,375               |       | 121,703            |       |
| Fixed Assets:                                                                                                                                                                                   |       |                  |       |               |       |
| Property, plant,  and equipment                                                                                                                                                                 |       | 277,181               |       | 279,588            |       |
| Less accumulated  depreciation                                                                                                                                                                  |       | (121,428              | )          | (120,859           | )          |
| Net fixed assets                                                                                                                                                                                |       | 155,753               |       | 158,729            |       |
| Licenses                                                                                                                                                                                        |       | 14,738                |       | 14,738             |       |
| Goodwill                                                                                                                                                                                        |       | 39,344                |       | 39,384             |       |
| Other  intangibles, net                                                                                                                                                                         |       | 2,349                 |       | 2,133              |       |
| Investment in  and advances to unconsolidated affiliates                                                                                                                                        |       | 12,453                |       | 11,929             |       |
| Other assets                                                                                                                                                                                    |       | 1,614                 |       | 4,501              |       |
| Total assets                                                                                                                                                                                    |       | $                     | 344,626    |               | $          | 353,117 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                   |       |                  |       |               |       |
| Current  Liabilities:                                                                                                                                                                           |       |                  |       |               |       |
| Accounts payable  and accrued liabilities                                                                                                                                                       |       | $                     | 25,618     |               | $          | 27,157 |   |
| Dividends  payable                                                                                                                                                                              |       | 2,461                 |       | 2,463              |       |
| Accrued taxes                                                                                                                                                                                   |       | 11,029                |       | 9,995              |       |
| Advance payments  and deposits                                                                                                                                                                  |       | 3,912                 |       | 3,898              |       |
| Other current  liabilities                                                                                                                                                                      |       | 1,859                 |       | 2,926              |       |
| Total current  liabilities                                                                                                                                                                      |       | 44,879                |       | 46,439             |       |
| Deferred income  taxes                                                                                                                                                                          |       | 13,082                |       | 13,282             |       |
| Other  liabilities                                                                                                                                                                              |       | 458                   |       | 458                |       |
| Long-term debt,  excluding current portion                                                                                                                                                      |       | 50,000                |       | 50,000             |       |
| Total  liabilities                                                                                                                                                                              |       | 108,419               |       | 110,179            |       |
| Minority  interests                                                                                                                                                                             |       | 27,236                |       | 28,106             |       |
| Commitments and  contingencies (Note 11)                                                                                                                                                        |       |                  |       |               |       |
| Stockholders’  Equity:                                                                                                                                                                     |       |                  |       |               |       |
| Preferred stock,  $0.01 par value per share; 10,000,000 shares authorized, none issued and  outstanding                                                                                         |       | —                |       | —             |       |
| Common stock,  $0.01 par value per share; 50,000,000 shares authorized; 15,675,518 and  15,684,893 shares issued, respectively, and 15,220,546 and 15,230,797 shares  outstanding, respectively |       | 157                   |       | 157                |       |
| Treasury stock,  at cost; 454,972 and 454,096 shares, respectively                                                                                                                              |       | (3,403                | )          | (3,396             | )          |
| Additional  paid-in capital                                                                                                                                                                     |       | 106,038               |       | 106,462            |       |
| Retained  earnings                                                                                                                                                                              |       | 108,414               |       | 113,844            |       |
| Accumulated  other comprehensive loss                                                                                                                                                           |       | (2,235                | )          | (2,235             | )          |
| Total  stockholders’ equity                                                                                                                                                                |       | 208,971               |       | 214,832            |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                |       | $                     | 344,626    |               | $          | 353,117 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2008(Unaudited)(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| **REVENUE:**                                                                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Wireless                                                                                                 |       | $                                                | 18,704     |   | $ | 19,753 |   |
| Local telephone  and data                                                                                |       | 11,067                                           |       | 12,246 |   |
| International  long distance                                                                             |       | 13,171                                           |       | 12,556 |   |
| Other                                                                                                    |       | 978                                              |       | 1,075 |   |
| Total revenues                                                                                           |       | 43,920                                           |       | 45,630 |   |
| **OPERATING  EXPENSES***(excluding depreciation  and amortization unless otherwise indicated):*          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Termination and  access fees                                                                             |       | 6,560                                            |       | 7,588 |   |
| Internet and  programming                                                                                |       | 849                                              |       | 899 |   |
| Engineering and  operations                                                                              |       | 5,764                                            |       | 5,856 |   |
| Sales and  marketing                                                                                     |       | 5,096                                            |       | 2,674 |   |
| General and  administrative                                                                              |       | 5,850                                            |       | 5,882 |   |
| Depreciation and  amortization                                                                           |       | 6,501                                            |       | 7,077 |   |
| Gain on  disposition of long-lived assets                                                                |       | (133                                             | )          | — |   |
| Total operating  expenses                                                                                |       | 30,487                                           |       | 29,976 |   |
| Income from  operations                                                                                  |       | 13,433                                           |       | 15,654 |   |
| **OTHER  INCOME (EXPENSE):**                                                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Interest expense                                                                                         |       | (225                                             | )          | (653 | ) |
| Interest income                                                                                          |       | 594                                              |       | 569 |   |
| Other, net                                                                                               |       | 254                                              |       | 225 |   |
| Other income  (expense), net                                                                             |       | 623                                              |       | 141 |   |
| **INCOME  BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF  UNCONSOLIDATED AFFILIATES** |       | 14,056                                           |       | 15,795 |   |
| Income taxes                                                                                             |       | 6,664                                            |       | 7,390 |   |
| **INCOME  BEFORE MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                |       | 7,392                                            |       | 8,405 |   |
| Minority  interests, net of tax of $0.9 million and $1.0 million, respectively                           |       | (949                                             | )          | (1,001 | ) |
| Equity in  earnings of unconsolidated affiliates                                                         |       | 455                                              |       | 463 |   |
| **NET  INCOME**                                                                                          |       | $                                                | 6,898      |   | $ | 7,867 |   |
| **NET  INCOME PER SHARE:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Basic                                                                                                    |       | $                                                | 0.46       |   | $ | 0.52 |   |
| Diluted                                                                                                  |       | $                                                | 0.45       |   | $ | 0.51 |   |
| **WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING:**                                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Basic                                                                                                    |       | 15,151                                           |       | 15,197 |   |
| Diluted                                                                                                  |       | 15,321                                           |       | 15,290 |   |
| **DIVIDENDS  PER SHARE APPLICABLE TO COMMON STOCK**                                                      |       | $                                                | 0.14       |   | $ | 0.16 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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** **

**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND2008(Unaudited)(Dollars in thousands)**

 
| ** **                                                                                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                              | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net income                                                                                              |       | $                                                | 6,898      |   | $ | 7,867 |   |
| Adjustments to  reconcile net income to net cash flows provided by operating activities:                |       |                                             |       |   |   |
| Depreciation and  amortization                                                                          |       | 6,501                                            |       | 7,077 |   |
| Gain on sale of  investments in unconsolidated affiliates                                               |       | (133                                             | )          | — |   |
| Stock-based  compensation                                                                               |       | 214                                              |       | 273 |   |
| Deferred income  taxes                                                                                  |       | 231                                              |       | 200 |   |
| Minority  interests                                                                                     |       | 949                                              |       | 1,001 |   |
| Equity in  earnings of unconsolidated affiliates                                                        |       | (455                                             | )          | (463 | ) |
| Dividends  received from Bermuda Digital Communications, Ltd.                                           |       | 484                                              |       | 553 |   |
| Changes in  operating assets and liabilities, excluding the effects of acquisitions:                    |       |                                             |       |   |   |
| Accounts  receivable, net                                                                               |       | (1,763                                           | )          | 640 |   |
| Materials and  supplies, prepayments, and other current assets                                          |       | 2,472                                            |       | (1,711 | ) |
| Other assets                                                                                            |       | (692                                             | )          | 64 |   |
| Accounts payable  and accrued liabilities, advance payments and deposits and other current  liabilities |       | (2,599                                           | )          | 4,705 |   |
| Accrued taxes                                                                                           |       | 1,371                                            |       | (1,034 | ) |
| Net cash  provided by operating activities                                                              |       | 13,478                                           |       | 19,172 |   |
| **CASH FLOWS  FROM INVESTING ACTIVITIES:**                                                              | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                                   |       | (8,943                                           | )          | (11,647 | ) |
| Increase in  deposits for acquisition of spectrum                                                       |       | —                                           |       | (2,951 | ) |
| Purchase of  short term marketable securities                                                           |       | (5,076                                           | )          | (66 | ) |
| Decrease in  restricted cash                                                                            |       | —                                           |       | 1,524 |   |
| Acquisitions of  businesses                                                                             |       | (6,503                                           | )          | (40 | ) |
| Proceeds from  sale of investments in unconsolidated affiliates                                         |       | 276                                              |       | — |   |
| Net cash used in  investing activities                                                                  |       | (20,246                                          | )          | (13,180 | ) |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                              | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Distributions to  minority shareholders                                                                 |       | (20                                              | )          | (326 | ) |
| Dividends paid  on common stock                                                                         |       | (2,123                                           | )          | (2,435 | ) |
| Proceeds from  exercise of stock options                                                                |       | —                                           |       | 157 |   |
| Net cash used in  financing activities                                                                  |       | (2,143                                           | )          | (2,604 | ) |
| **NET  CHANGE IN CASH AND CASH EQUIVALENTS**                                                            |       | (8,911                                           | )          | 3,388 |   |
| **CASH  AND CASH EQUIVALENTS, beginning of the period**                                                 |       | 60,543                                           |       | 71,173 |   |
| **CASH  AND CASH EQUIVALENTS, end of the period**                                                       |       | $                                                | 51,632     |   | $ | 74,561 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. ORGANIZATION AND BUSINESS OPERATIONS**

 

Atlantic Tele-Network, Inc. (“ATN” or “Company”)provides wireless and wireline telecommunication services in the Caribbean andNorth America through the following operating subsidiaries and affiliates:

 

·       GuyanaTelephone & Telegraph Company, Ltd. (“GT&T”), the nationaland international telephone company in the Republic of Guyana and the largestwireless service provider in that country. The Company has owned 80% of thestock of GT&T since January 1991. GT&T generated approximately 60%and 55% of the Company’s consolidated revenues for the three months ended March 31,2007 and 2008, respectively.

 

·       Commnet Wireless, LLC (“Commnet”),an owner and operator of wholesale wireless networks in rural areas of theUnited States. Commnet provides wireless voice and data communications roamingservices primarily to national, regional and local wireless carriers. Weacquired 95% of the equity of Commnet in September 2005 and the remaining5% in January 2007.

 

·       Sovernet, Inc.,(“Sovernet”), a facilities-based integrated voice, broadband datacommunications and dial-up service provider in New England, primarily inVermont. The Company has owned 96% of Sovernet since its acquisition during2006.

 

·       BermudaDigital Communications, Ltd. (“BDC”), the largest wireless voice and datacommunications service provider in Bermuda, doing business under the name “CellularOne”. The Company acquired an equity interest in, and signed a managementcontract with, BDC in 1998. As of March 31, 2008 the Company  owned 43% of the equity of BDC.  On May 15, 2008, we expect BDC to completea share repurchase that will result in an increase of our equity interest in BDCfrom 43% to 58%.  See Note 12 to thisReport.

 

·       ChoiceCommunications, LLC (“Choice Communications” or “Choice”), is a leadingprovider of fixed wireless broadband data, wireless digital television servicesand dial-up Internet services to retail and business customers in the U.S.Virgin Islands. Choice is a wholly owned subsidiary of the Company.

 

ATN provides management, technical, financial,regulatory and marketing services for its subsidiaries and affiliates andtypically receives a management fee equal to approximately 4% to 6% of theirrespective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. Management fees from unconsolidated affiliates areincluded in “Other Income” in the accompanying statements of operations.

 

**2. BASIS OF PRESENTATION**

 

The accompanying condensed consolidated financialstatements have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”). The financialinformation included herein is unaudited; however, the Company believes suchinformation and the disclosures herein are adequate to make the informationpresented not misleading and reflect all adjustments (consisting only of normalrecurring adjustments) that are necessary for a fair statement of the Company’sfinancial position and results of operations for such periods. The year-endcondensed balance sheet data was derived from audited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the United States of America. Results of interim periods may not be indicative of results for thefull year.  These condensed consolidatedfinancial statements and related notes should be read in conjunction with theCompany’s 2007 Annual Report on Form 10-K.

 

*Consolidation*

 

The consolidated financial statements include theaccounts of the Company, its majority-owned subsidiaries and Commnet ofFlorida, LLC, which is consolidated in accordance with the provisions ofFinancial Accounting Standards Board 

 

7

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(“FASB”) Interpretation No. 46, *Consolidation of Variable Interest Entities, an interpretation onAccounting Research Bulletin No. 51* as revised in December 2003since it was determined that the Company is the primary beneficiary of Commnetof Florida, LLC.

 

Except for the Company’s investment in Commnet ofFlorida, LLC, the equity method of accounting is used for the Company’sinvestments in affiliated entities in which the Company has at least a 20%ownership but does not have management control. The Company accounts forinvestments of less than 20% for which the Company does not have the ability toexert significant influence over the operations by using the cost method ofaccounting.

 

See Note 12 to this Report regarding the Company’sfuture consolidation of BDC operating results.

 

*Recent Accounting Pronouncements*

 

EffectiveJanuary 1, 2008, we implemented Statement of Financial Accounting StandardNo. 157, *Fair Value Measurement*(“SFAS 157”), for our financial assets and liabilities that arere-measured and reported at fair value at each reporting period, andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually. In accordance with the provisions of FASB staffposition No. FAS 157-2, *EffectiveDate of FASB Statement No. 157,*we have elected to deferimplementation of SFAS 157 as it relates to our non-financial assets andnon-financial liabilities that are recognized and disclosed at fair value inthe financial statements on a nonrecurring basis until January 1, 2009. Weare evaluating the impact, if any, this Standard will have on our non-financialassets and liabilities.

 

Theadoption of SFAS 157 to our financial assets and liabilities andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually did not have a material impact on our financialresults.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure certain financial instruments and othereligible items at fair value when the items are not otherwise currentlyrequired to be measured at fair value. We adopted SFAS 159 effective January 1,2008.  Upon adoption, we did not elect the fair value option for anynew items within the scope of SFAS 159 and, therefore, the adoption of SFAS 159did not have an impact on our consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R addresses the recognition andaccounting for identifiable assets acquired, liabilities assumed, andnoncontrolling interests in business combinations. SFAS 141R also establishesexpanded disclosure requirements for business combinations. SFAS 141R iseffective for us on January 1, 2009, and we will apply SFAS 141Rprospectively to all business combinations subsequent to the effectivedate.  We are currently evaluating theimpact that the adoption of SFAS 141R will have on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements - an amendment of ARB No. 51*(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  SFAS 160 requires that noncontrolling interests insubsidiaries be reported in the equity section of the controlling company’sbalance sheet. It also changes the manner in which the net income of thesubsidiary is reported and disclosed in the controlling company’s incomestatement. SFAS 160 is effective for fiscal years beginning after December 15,2008. We are currently evaluating the impact that the adoption of SFAS 160 willhave on our consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133*(“SFAS 161”).  SFAS 161 amends and expands the disclosurerequirements of Statement 133 to provide a better understanding of how and whyan entity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for, and their effect on an entity’s financial position,financial performance, and cash flows.  SFAS 161 is effective forfiscal years beginning after November 15, 2008.  As of March 31, 2008, we did not haveany derivative instruments and do not expect that the adoption of SFAS 161 willhave any impact on our consolidated financial statements.

 

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*Reclassifications*

 

Certain reclassifications have been made to the 2007statement of operations to conform to the 2008 presentation.  Such reclassifications included an increaseto 2007 wireless revenue of approximately $532,000; a decrease to 2007 local telephone and datarevenue of $400,000; an increase to 2007 international long distance revenue of$251,000 and an increase to 2007 termination and access fees expense of$383,000.

 

**3. USE OF ESTIMATES**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the financial statements and the reported amountsof revenues and expenses during the reporting periods. The most significantestimates relate to revenue recognition, allowance for doubtful accounts,useful lives of the Company’s fixed and finite-lived intangible assets,allocation of purchase price to assets acquired and liabilities assumed inpurchase business combinations, fair value of indefinite-live intangibleassets, goodwill and income taxes. Actual results could differ significantlyfrom those estimates.

 

**4. FAIR VALUE MEASUREMENTS**

 

Thefollowing tables present information about our assets and liabilities that aremeasured at fair value on a recurring basis as of March 31, 2008, andindicates the fair value hierarchy of the valuation techniques we utilized todetermine such fair value. In general, fair values determined by Level 1inputs utilize quoted prices (unadjusted) in active markets for identical assetsor liabilities. Fair values determined by Level 2 inputs utilize datapoints that are observable such as quoted prices, interest rates and yieldcurves. Fair values determined by Level 3 inputs are unobservable datapoints for the asset or liability, and includes situations where there islittle, if any, market activity for the asset or liability (in thousands):

 
| **Description**                          | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs**

**(Level 3)** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-----------|------------|
| Commercial paper                         |       | $                                                                   | —     |                                                               | $          | 3,000                                                         |       | $         | —     |   | $ | 3,000 |   |
| Certificates of  deposit                 |       | —                                                              |       | 5,346                                                              |       | —                                                        |       | 5,346     |       |
| Money market  funds                      |       | 38,694                                                              |       | —                                                             |       | —                                                        |       | 38,694    |       |
| **Total  assets measured at fair value** |       | $                                                                   | 38,694     |                                                               | $          | 8,346                                                         |       | $         | —     |   | $ | 47,040 |   |

 

9

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**5.  DEPOSIT FORACQUISITION OF SPECTRUM**

 

*During the first quarter of 2008,  we were awarded the right to acquire, for$3.0 million, certain spectrum in connection with our participation in the FCC’sauction (FCC Auction No. 73) of 700 MHz spectrum being re-claimed by theFCC from the broadcast industry and sold by the FCC to the wirelessindustry.  This amount is included inOther Assets in our Consolidated Balance Sheet as of March 31, 2008; itwill be reclassed to Licenses, and considered a capital expenditure, upon thefinalization of such award, scheduled to occur during the first quarter of2009.*

* *

**6.  CREDIT FACILITIES**

 

Long-term debt includes the following (in thousands):

 
| ** **                                                        | ** ** | **December 31,  2007** | ** ** | **March 31,  2008** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Note payable to  CoBank, ACB by ATN under a $50 million term loan |       | $                           | 50,000     |                     | $          | 50,000 |   |
|                                                                   |            |                             |            |                          |            |  |  |

 

On September 15, 2005, ATN, as borrower, enteredinto a credit agreement with CoBank, ACB (the “CoBank Credit Agreement”). TheCoBank Credit Agreement provides a $50 million term loan (the “Term Loan”) anda $20 million revolving credit facility (the “Revolver Facility”, together withthe Term Loan, the “Credit Facility”). The Credit Facility is guaranteed by ourCommnet subsidiary and is collateralized by, among other things, a securityinterest in substantially all of the assets of and stock owned by ATN andCommnet. The Term Loan has principal repayments deferred until the maturity ofthe loan on October 31, 2010. Interest on the Term Loan is payable on aquarterly basis at a fixed annual interest rate of 5.85%, net of any patronagepayments received by the Company from the bank. Amounts outstanding under theRevolver Facility (none as of March 31, 2008) accrue interest at a rateequal to (at the Company’s option): (i) LIBOR plus a margin ranging from1.25% to 1.50% or (ii) a variable rate of interest as defined within theRevolver Facility plus 1%.

 

The CoBank Credit Agreement contains certainaffirmative and negative covenants of ATN and its subsidiaries (includingCommnet) that are typical for loan facilities of this type. Among other things,these covenants restrict ATN’s ability to incur additional debt in the futureor to incur liens on its property. ATN has also agreed to maintain certainfinancial ratios under the facilities, including a total leverage ratio (debtto EBITDA) of two to one or less; a debt service coverage ratio (EBITDA to debtservice) of three to one or more; an equity to assets ratio of 0.4 to one ormore; and a specified leverage ratio for Commnet of 5.00 to one or less. As of March 31,2008, the Company was in compliance with the covenants of the CoBank CreditFacility.

 

**7.  STOCK-BASEDCOMPENSATION**

 

During the three months ended March 31, 2007 and2008, the Company recognized $214,000 and $273,000, respectively, of non-cashcompensation expense relating to grants under the 1998 Stock Option Plan and2005 Atlantic Tele-Network Restricted Stock Plan and Incentive Plan (the “ShareBased Plans”).

 

In March 2008, theCompany’s Board of Directors approved the grant, to certain employees, ofoptions to acquire 32,000 shares of the Company’s common stock at an exerciseprice equal to the fair value of the Company’s common stock on the date of grant.In connection with the grant of the options, the Company will recognize$316,000 of stock-based compensation which will be amortized over the vestingperiod of four years.

 

**8. NET INCOME PER SHARE**

 

For the three months ended March 31, 2007 and2008, the common shares issued under the Company’s 2005 Restricted Stock Planand options issued under the Company’s 1998 Stock Option Plan were the onlypotentially dilutive securities.

 

10

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The reconciliation frombasic to diluted weighted average common shares outstanding is as follows (inthousands):

 
| ** **                                                                  | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| Basic weighted  average common shares outstanding                           |       | 15,151                                           |       | 15,197 |   |
| Unvested shares  issued under the Company’s 2005 Restricted Stock Plan |       | 48                                               |       | 19 |   |
| Stock options                                                               |       | 122                                              |       | 74 |   |
| Diluted weighted  average common shares outstanding                         |       | 15,321                                           |       | 15,290 |   |

 

Thefollowing notes the number of common shares not included in the abovecalculation because the effects of such were anti-dilutive:

 
| ** **                                                                  | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| Unvested shares  issued under the Company’s 2005 Restricted Stock Plan |       | —                                           |       | 21 |   |
| Stock options                                                               |       | 229                                              |       | 383 |   |
| Total                                                                       |       | 229                                              |       | 404 |   |

 

**9. SEGMENT REPORTING**

 

The Company has fourreportable segments which are considered material for separate disclosure underStatement of Financial Accounting Standards No. 131, *Disclosures About Segments of an Enterprise and  Related Information.* Those foursegments are: i) Integrated Telephony-International, which generates allof its revenues in Guyana and has all of its assets located in Guyana (“GT&T”),ii) Integrated Telephony-Domestic, which generates all of its revenues andhas all of its assets located in the United States (“Sovernet”), iii) WirelessTelevision and Data, which generates all of its revenues in and has all of itsassets located in the U.S Virgin Islands (“Choice”), and iv) RuralWireless, which generates all of its revenues in the United States and has allof its assets located in the United States (“Commnet”). The operating segmentsare managed separately because each offers different services and servesdifferent markets. Certain elements of the 2007 segment information have beenrevised to conform to the current format of financial information reviewed bythe Company’s chief operating decision makers.

 

The following tablesprovide information for each operating segment (in thousands):

 
| ** **                                                   | ** ** | **For the Three Months Ended March 31, 2007** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                        | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                | 26,455     |   | $ | 3,633 |   | $ | 1,995 |   | $ | 11,837 |   | $ | — |   | $ | 43,920 |   |
| Depreciation and  amortization                               |       | 3,877                                                                            |       | 470 |   | 547 |   | 1,530 |   | 77 |   | 6,501 |   |
| Non-cash  stock-based compensation                           |       | —                                                                           |       | 32 |   | — |   | — |   | 182 |   | 214 |   |
| Gain on  disposition of long-lived assets                    |       | —                                                                           |       | — |   | — |   | (133 | ) | — |   | (133 | ) |
| Operating income  (loss)                                     |       | 11,077                                                                           |       | 439 |   | (568 | ) | 4,869 |   | (2,384 | ) | 13,433 |   |
| Interest expense                                             |       | —                                                                           |       | (3 | ) | (862 | ) | (167 | ) | 807 |   | (225 | ) |
| Interest income                                              |       | 141                                                                              |       | 66 |   | — |   | 34 |   | 353 |   | 594 |   |
| Income taxes                                                 |       | 4,634                                                                            |       | 149 |   | (199 | ) | 1,705 |   | 375 |   | 6,664 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                           |       | — |   | — |   | — |   | 455 |   | 455 |   |
| Net income  (loss)                                           |       | $                                                                                | 4,118      |   | $ | 199 |   | $ | (1,352 | ) | $ | 2,420 |   | $ | 1,513 |   | $ | 6,898 |   |

 

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| ** **                                                   | ** ** | **For the Three Months Ended March 31, 2008** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                        | ** ** | **Integrated  Telephony-**

**Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                | 25,203     |   | $ | 3,700 |   | $ | 2,184 |   | $ | 14,543 |   | $ | — |   | $ | 45,630 |   |
| Depreciation and  amortization                               |       | 4,183                                                                            |       | 428 |   | 398 |   | 1,992 |   | 76 |   | 7,077 |   |
| Non-cash  stock-based compensation                           |       | —                                                                           |       | 32 |   | — |   | — |   | 241 |   | 273 |   |
| Operating income  (loss)                                     |       | 10,889                                                                           |       | 580 |   | (421 | ) | 6,748 |   | (2,142 | ) | 15,654 |   |
| Interest expense                                             |       | —                                                                           |       | (2 | ) | (879 | ) | (138 | ) | 366 |   | (653 | ) |
| Interest income                                              |       | 195                                                                              |       | 59 |   | — |   | 174 |   | 141 |   | 569 |   |
| Income taxes                                                 |       | 4,937                                                                            |       | 200 |   | (147 | ) | 2,481 |   | (81 | ) | 7,390 |   |
| Equity in  earnings of unconsolidated affiliates, net of tax |       | —                                                                           |       | — |   | — |   | — |   | 463 |   | 463 |   |
| Net income  (loss)                                           |       | $                                                                                | 3,835      |   | $ | 278 |   | $ | (1,306 | ) | $ | 3,604 |   | $ | 1,456 |   | $ | 7,867 |   |

 
| ** **                      | ** ** | **Segment Assets**                   | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| **December 31, 2007** | ** ** | **Integrated  Telephony-  International** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Reconciling   Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets                |       | $                                         | 111,963    |   | $ | 3,320 |   | $ | 4,884 |   | $ | 34,868 |   | $ | 718 |   | $ | 155,753 |   |
| Goodwill                        |       | —                                    |       | 7,196 |   | — |   | 32,148 |   | — |   | 39,344 |   |
| Total assets                    |       | 156,094                                   |       | 22,922 |   | 6,547 |   | 117,680 |   | 41,383 |   | 344,626 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                   | ** ** | **Segment Assets**                   | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| **March 31, 2008** | ** ** | **Integrated  Telephony-  International** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets             |       | $                                         | 109,107    |   | $ | 3,313 |   | $ | 4,712 |   | $ | 40,951 |   | $ | 646 |   | $ | 158,729 |   |
| Goodwill                     |       | —                                    |       | 7,236 |   | — |   | 32,148 |   | — |   | 39,384 |   |
| Total assets                 |       | 160,845                                   |       | 22,213 |   | 6,409 |   | 123,637 |   | 40,013 |   | 353,117 |   |
|                              |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **Capital Expenditures**                    | ** ** |
|--------------------------------------------------|------------|
| **Three Months Ended  March 31,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Integrated  Telephony  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Rural  Wireless** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| 2007                                             |       | 4,916 |   | 463 |   | — |   | 3,564 |   | — |   | $ | 8,943 |   |
| 2008                                             |       | 3,530 |   | 205 |   | 118 |   | 7,792 |   | 2 |   | $ | 11,647 |   |

 

**10.  RELATEDPARTY TRANSACTION**

 

In 2001, the Company curtailed the operations andfunding of its ATN-Haiti and Transnet S.A. subsidiaries (the “HaitianSubsidiaries”), wrote-down its investment and began exploring strategicalternatives for the use or disposition of the remaining assets of the HaitianSubsidiaries. In May 2006, the Company’s Board of Directors authorized theCompany to enter into discussions to sell, at fair value, subject to review andfinal approval by the Audit Committee, the remaining assets of the HaitianSubsidiaries, consisting primarily of an office building and 13 tower siteslocated in Haiti, to Cornelius B. Prior, Jr., the Company’s Executive Chairman,who is also the father of the Company’s Chief Executive Officer.

 

In August 2007, the Company, upon final approval bythe Company’s Board of Directors and Audit Committee, completed the sale of theremaining assets of the Haitian Subsidiaries to Access Haiti, S.A., a Haitiancompany in which Mr. Prior is a significant equity holder, for $750,000 and therelease by Access Haiti, S.A. of certain indebtedness of Transnet S.A. Inconnection with the sale, Mr. Prior has agreed to indemnify the Company for anyclaims made against the Haitian Subsidiaries by creditors and vendors of theHaitian Subsidiaries in excess of $200,000 in the aggregate. In addition, Mr. Priorhas agreed to assist the Company in dissolving the Haitian Subsidiaries andagreed that if the dissolution had not been completed by January 2008, theCompany would retain the right to sell the Company’s equity interests in theHaitian Subsidiaries to Mr. Prior for $1. On May 6, 2008, Mr. Prior purchasedthe Company’s remaining equity interests.

 

**11.  COMMITMENTS ANDCONTINGENCIES-**

** **

**Regulatoryand Litigation Matters**

** **

The Company and its subsidiaries are subject tocertain regulatory and legal proceedings and other claims arising in theordinary course of business, some of which involve claims for damages and taxesthat are substantial in amount. The Company believes that, except for the itemsdiscussed below, for which the Company is currently unable to predict the finaloutcome, the disposition of proceedings currently pending will not have amaterial adverse effect on the Company’s financial position or results ofoperations.

 

***Regulatory***

*** ***

The Company’s Guyana subsidiary, GT&T, is subjectto regulation in Guyana under the provisions of its license and under theGuyana Public Utilities Commission Act of 1999 and the GuyanaTelecommunications Act of 1990. GT&T also has certain significant rightsand obligations under the agreement pursuant to which the Company acquired itsinterest in GT&T in 1991. In addition, because of the large volume oftraffic that GT&T has with the United States, GT&T can be significantlyaffected by orders of U.S. regulatory agencies.

 

In a letter dated September 8, 2006, the NationalFrequency Management Unit (“NFMU”) agreed that GT&T’s total spectrum feesshould not increase for the years 2006 and 2007. However, that letter impliedthat spectrum fees in 2008 and onward may be increased beyond the amount

 

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agreed between GT&T and the Government. GT&T stated itsposition in a September 14, 2006 letter to the Government that, byagreement with the Government, spectrum fees would be capped until the NFMUdevelops a fee methodology, acceptable to all GSM Spectrum licensees, thatresults in total spectrum fees payable that do not appreciably exceed thepreviously capped amount. In correspondence to GT&T in June 2007, theNFMU stated, without indicating whether a fee methodology would be developed,that the cap on GSM spectrum fees will be removed in December 2007. In aletter dated July 3, 2007 to the NFMU, GT&T objected to the NFMU’sproposed action and reiterated its position that determining spectrum feesprior to development of an acceptable methodology would violate the Government’sprior agreement.

 

Since 2001, the Government has stated its intention tointroduce additional competition into Guyana’s telecommunications sector,including conducting formal discussions with GT&T in 2002 regarding thismatter. Most recently, in February and March 2008, at the request ofthe Government, GT&T met with high-ranking members of the Government todiscuss potential modifications of GT&T’s exclusivity rights and theintroduction of competition. ATN and GT&T believe that such competition isprecluded by the wireline exclusivity provision of our license, which has astated expiration in December 2010 and is renewable for an additional20 year term at GT&T’s option.

 

ATN and GT&T believe that any early termination ofour exclusivity would require our consent and appropriate compensation toGT&T, including but not limited to, an adjustment of service rates toreflect the real economic cost to GT&T of providing such services. Further,ATN and GT&T believe that certain modifications to the legal and regulatoryregime governing the telecommunications market sector in Guyana would beneeded, as well as the satisfactory resolution of certain long-standing claimsbetween ATN and GT&T and the Government relating to certain tax and othermatter (as described below) for GT&T to consider voluntarily relinquishingits rights by law and contract to be the exclusive provider of domestic fixedand international voice and data services in Guyana.  Although discussions are ongoing, we havebeen open about our willingness to forego renewal of our internationalexclusivity rights in 2010 as part of an overall settlement and agreement,although the Government has indicated to us a desire to introduce competitionin international services at an earlier date.

 

At this time, ATN and GT&T do not know if therewill be any regulatory developments in Guyana that will have the effect ofterminating or limiting the exclusivity provision of our license, and if so,the timing of any such developments and whether they would be pursuant to anagreement between GT&T and the Government. Other than entering into such anagreement on terms acceptable to us, ATN and GT&T would seek to enforceGT&T’s rights by law and contract to be the exclusive provider ofinternational voice and data services in Guyana. Although ATN and GT&Tbelieve that they would be entitled to damages for any involuntary terminationof that exclusive license, ATN and GT&T cannot guarantee that we wouldprevail in any court or arbitration proceeding.

 

On January 15, 2007, the Public UtilitiesCommission (“PUC”) issued a ruling that fixed floor and ceiling rates for boththe pre-paid and the post-paid cellular services offered by GT&T and itscompetition. The PUC has indicated its intent to revisit the floor rate and,possibly, eliminate it. In addition, the PUC ordered the companies to implementper-second billing for cellular airtime as opposed to the pre-existing practiceof per-minute billing for airtime. The PUC has initiated a proceeding toconsider expanding per-second billing to non-mobile, international outboundservice. Any such action by the PUC could have an adverse effect on GT&T’sfinancial condition or results of operations.

 

In October 1997, the PUC ordered GT&T toincrease the number of telephone lines in service to a total of 69,278 lines bythe end of 1998; 89,054 lines by the end of 1999; and 102,126 lines by the endof 2000; to allocate and connect an additional 9,331 telephone lines before theend of 1998; and to provide to subscribers who request them facilities for calldiversion, call waiting, reminder call, and three-way calling by the end of1998. In issuing this order, the PUC did not hear evidence or make any findingson the cost of providing these lines and services, the adjustment in telephonerates that may be necessary to give GT&T a fair return on its investment,or the ways and means of financing the requirements of the PUC’s order.GT&T has appealed the PUC’s order to the Guyana Court of Appeal, and thatappeal is still pending. No stay currently exists against this order.

 

In July 2004, the FCC released an order revisingthe spectrum band plan applicable to the Broadband Radio Service andEducational Broadband Service. These are the spectrum bands through whichChoice operates its video and broadband data services. The new rules restructurethese spectrum bands and could materially impact Choice customers andoperations if Choice is required to transition to the new band plan. The FCChas stated that it will consider requests for waiver of the new band planrequirements on a case-by-case basis and described the circumstances underwhich waivers would be granted. To

 

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date the FCC has granted at least three waivers that excuse entitiessimilar to Choice from the re-banding requirement. On April 30, 2007,Choice filed a waiver request at the FCC, which remains pending.

 

In a separate proceeding in September 2005, theFCC released an order reallocating to Advanced Wireless Services (“AWS”)another spectrum band used by Choice for its broadband data service. In September 2006,the FCC completed an auction of the AWS spectrum to new licensees. As a result,Choice will be required to relocate certain operations to different spectrum,which may result in a reduction of the amount of overall spectrum available toChoice. However, Choice believes any disruption to its operations by relocatingto accommodate new AWS licensees will be mitigated by the FCC’s relocation andcompensation rules which specify a mandatory, multi-year negotiationperiod and relocation to comparable facilities with the costs borne by theparty precipitating the move. Furthermore, Choice has mitigated or eliminatedthe possibility of a net reduction of its spectrum due to the reallocation toAWS by obtaining an additional 24 MHz of spectrum from the FCC.

 

***Litigation***

*** ***

Upon the acquisition of GT&T in January 1991,ATN entered into an agreement with the government of Guyana to significantlyexpand GT&T’s existing facilities and telecommunications operations and toimprove service within a three-year period pursuant to an expansion and serviceimprovement plan (the “Plan”). The government agreed to permit rate increasesin the event of currency devaluation within the three-year period, but GT&Twas unable to get timely increases when the Guyanese currency suffered a sharpdecline in March 1991. The Plan was modified in certain respects, and thedate for completion of the Plan was extended to February 1995. Since 1995,the PUC has had pending a proceeding initiated by the Minister ofTelecommunications of Guyana with regard to the failure of GT&T to completethe Plan by February 1995. The PUC last held hearings on this matter in1998. It is GT&T’s position that its failure to receive timely rateincreases in compensation for the devaluation of currency in 1991 provideslegal justification for GT&T’s delay in completing the Plan. If the PUCwere to find that GT&T was not excused from fulfilling the terms of thePlan by February 1995, GT&T could be subject to monetary penalties,cancellation of its license, or other action by the PUC or the government thatcould have a material adverse effect on the Company’s business and prospects.The requirements of the Plan were substantially completed more than five yearsago. GT&T believes that its obligations have been fulfilled and it hascontinued to aggressively develop the telecommunications infrastructure in allareas including landline, wireless and data.

 

GT&T is contesting income tax assessments ofapproximately $7.3 million that it has received from the commissioner ofInland Revenue for the years 1991-1996 based on the disallowance as a deductionfor income tax purposes of five-sixths of the advisory fees payable by GT&Tto the Company. The deductibility of these advisory fees was upheld for one ofthese years by a decision of the High Court in August 1995. The GuyanaCommission of Inland Revenue has filed a High Court Writ seeking an ordersetting aside that decision on the grounds that the Commissioner did not have aproper hearing. GT&T has contested that Writ. The assessments for the otheryears are being held in abeyance pending decision on the Writ and GT&Tmotions to strike. Subsequent to December 31, 2001, GT&T receivedassessments for the years 1997-2000 in the aggregate amount of approximately$6.5 million raising the same issues. GT&T expects that proceedings onthese assessments will also be held in abeyance pending the Court’s decision.

 

In November 1997, GT&T received assessmentsof the current equivalent of approximately $9.7 million from thecommissioner of Inland Revenue for taxes for the years 1991 through 1996. It isGT&T’s understanding that these assessments stem from an audit that the GuyanaHigh Court stayed before it was completed. Apparently, because the audit wascut short as a result of the High Court’s order, GT&T did not receivenotice of, and an opportunity to respond to, the proposed assessments as is thecustomary practice in Guyana, and substantially all of the issues raised in theassessments appear to be based on mistaken facts. GT&T has applied to theGuyana High Court for an order prohibiting the commissioner of Inland Revenuefrom enforcing the assessments on the grounds that the origin of the audit andthe failure to give GT&T notice of, and opportunity to respond to, theproposed assessments violated Guyanese law. The Guyana High Court has issued anorder effectively prohibiting any action on the assessments pending the determinationby the High Court of the merits of GT&T’s application.

 

14

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Should GT&T be held liable for any of the abovetax liabilities, totaling $23.5 million, the Company believes that thegovernment of Guyana would be obligated to reimburse GT&T for any amountsthat would reduce GT&T’s return on investment to less than 15% per annumfor the relevant periods.

 

In early 2000, Inet Communications, Inc., aninternet service provider in Guyana, and the Guyana Consumers Association fileda suit in the High Court against the Attorney General of Guyana and GT&T.The suit claims that GT&T is not entitled to rate increases based on theagreement between the Government of Guyana and ATN and that the Civil Law ofGuyana prohibits what is referred to as GT&T’s monopoly. Inet’s motion wasstruck down for non-appearance of counsel. However, Inet’s counsel has appliedfor the matter to be restored. The Court has not yet taken action on Inet’sapplication.

 

In July 2002 an individual sued the AttorneyGeneral of Guyana in the Guyana courts asking, among other things, for adeclaration that the section of the Company’s 1990 contract with the Governmentof Guyana granting to GT&T an exclusive right to operate atelecommunications system in Guyana was null and void as contrary to law and tothe Constitution of Guyana. GT&T has joined the suit to contest theseclaims and this proceeding remains pending.

 

Forfurther information concerning other pending litigation matters, the dispositionof which could have a material adverse effect on the Company’s financialposition or results of operations,  see “Notesto Consolidated Financial Statements, Note 12, Commitments and Contingencies —Regulatory and Litigation Matters” in our 2007 Form 10-K.

 

**12.  SUBSEQUENT EVENTS**

 

On May 2, 2008, we announcedthat we had been notified by BDC that approximately $16.5 million in shares ofBDC’s common stock was tendered by shareholders pursuant to BDC’s self-tenderoffer, which expired on April 30, 2008. BDC notified participating shareholdersof its acceptance of the tendered shares and the transaction, which hasreceived all governmental, board and shareholder approval, is expected to closeduring May 2008. ATN did not tender any shares for repurchase, and, as a resultof the transaction, will increase its holdings from 43% to approximately 58% ofBDC’s outstanding common stock.  WhileBDC had initially expected to fund the repurchase of tendered shares through acombination of cash on hand and bank borrowings, we currently expect to loanBDC the funds to repurchase the shares. The loan would be up to $17.0 million and sourced from our cash onhand.  

 

Upon completion of thetender offer, BDC’s option, which would have been exercisable in July 2008, torepurchase from us all of our equity interest in BDC, will be replaced with ourright, exercisable in May 2013, to purchase all of BDC’s then outstandingcommon stock.  In the event we do notexercise that right, BDC will then have the right to purchase all of our equityinterest in BDC.  

 

We currently account for ourinvestment in BDC using the equity method of accounting but will begin toconsolidate the results of operations of BDC upon the completion of the tenderoffer.  For the year ended December 31,2007, BDC generated $24.8 million of revenues. 

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

This discussion should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations included in our Form 10-K. Some of the statements in thediscussion are forward-looking statements which are subject to risks,uncertainties and other factors that could cause actual results to differmaterially from future results expressed or implied by such forward-lookingstatements. These risk factors include those discussed under Item 1A, “RiskFactors” in our 2007 Form 10-K and those set forth in this Report under “CautionaryStatement Regarding Forward-Looking Statements.”

 

**OVERVIEW**

 

Weprovide wireless and wireline telecommunications services in the Caribbean andNorth America through the following operating subsidiariesand affiliate:

 

·       Guyana Telephone &Telegraph Company, Ltd. (or GT&T), the national and internationaltelephone company in the Republic of Guyana and the largest wireless serviceprovider in that country. We have owned 80% of the equity of GT&T since January 1991.

 

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·       Commnet Wireless, LLC (or Commnet),an owner and operator of wholesale wireless networks in rural areas of theUnited States. Commnet provides wireless voice and data communications roamingservices primarily to national, regional and local wireless carriers. Weacquired 95% of the equity of Commnet in September 2005 and the remaining5% in January 2007.

 

·         Sovernet, Inc., (or Sovernet),a facilities-based integrated voice, broadband data communications and dial-upservice provider in New England, primarily in Vermont. We have owned 96% ofSovernet since its acquisition in February 2006.

 

·         BermudaDigital Communications, Ltd. (or BDC), the largest wireless voice and datacommunications service provider in Bermuda, doing business under the nameCellular One. We acquired a minority equity interest in, and signed amanagement contract with, BDC in 1998. On May 15, 2008, we expect BDC toconclude a share repurchase that will result in an increase of our equityinterest in BDC from 43% to 58%.  Thistransaction is expected to close in May 2008.  See Note 12 to this Report for furtherdiscussions.

 

·       Choice Communications, LLC(or Choice), a leading provider of fixed wireless broadband data services,wireless digital television services and dial-up Internet services to retailand business customers in the U.S. Virgin Islands. We acquired Choice in October 1999and own 100% of the equity of Choice.

 

As a holding company, weprovide management, technical, financial, regulatory, and marketing servicesto, and typically receive a management fee equal to approximately 4% to 6% ofrevenues from each operating subsidiary and our BDC affiliate. Because wecurrently do not control BDC, we account for our investment in that entityunder the equity method. Earnings from BDC do not appear in our income fromoperations, but are instead reflected in equity in earnings of unconsolidatedaffiliates, net of tax, in the Consolidated Financial Statements included inthis Report.

 

The following chartsummarizes the operating activities of our subsidiaries and our BDC affiliateand the markets they serve as of March 31, 2008:

 
| **Services**                | ** ** | **Segment**                                                                                     | ** ** | **Operating Subsidiary/Affiliate**           | ** ** | **Markets**                                             |
|-----------------------------|------------|-------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------|
| Wireless                    |       | Rural Wireless  Integrated Telephony-International                                              |       | Commnet  GT&T  BDC(1)                    |       | United States (rural  markets) Guyana  Bermuda          |
|                        |       |                                                                                            |       |                                         |       |                                                    |
| Local Telephone and Data    |       | Integrated  Telephony-International Integrated Telephony-Domestic Wireless Television and  Data |       | GT&T  Sovernet  Choice (internet access) |       | Guyana  United States (New England) U.S. Virgin Islands |
|                        |       |                                                                                            |       |                                         |       |                                                    |
| International Long Distance |       | Integrated  Telephony-International                                                             |       | GT&T                                     |       | Guyana                                                  |
|                        |       |                                                                                            |       |                                         |       |                                                    |
| Other                       |       | Wireless Television and  Data                                                                   |       | Choice (digital television)                  |       | U.S. Virgin Islands                                     |

 

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(1)             Earnings from BDC donot appear in our income from operations but are instead reflected in equity inearnings of unconsolidated affiliates in the Consolidated Financial Statementsincluded in this Report.  As previouslydiscussed, the Company expects to own approximately 58% of BDC upon completionof a self-tender offer by BDC. This transaction is expected to close in May 2008.  The results of the operations of BDC will beconsolidated with ATN’s as of the closing date of the transaction.

 

For information about our business segments andgeographical information about our operating revenues and long-lived assets,see Note 9 to the Consolidated Financial Statements included in this Report.

 

In the past, we generatedmost of our revenue and operating income from our GT&T operations and wecontinue to rely on GT&T for a majority of our revenues and profits.GT&T provides domestic wireline telephone service and international longdistance service pursuant to an exclusive license from the Government of Guyanaand provides wireless service on a non-exclusive basis. The rates that GT&Tmay charge for its services are regulated by the Public Utility

 

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Commission of Guyana (orPUC), an independent regulatory body responsible for regulatingtelecommunications. See “Business—Regulation of Our GT&T Subsidiary” in the2007 Form 10-K. The largest component of GT&T’s contribution to ourconsolidated revenue and profit has been from its international long distancebusiness and that business still accounts for roughly half of GT&T’srevenue.  Most of these revenues andprofits are from payments by foreign carriers, which are denominated in U.S.dollars, for handling international long distance calls originating by foreigncarriers and terminating in Guyana. The rates at which GT&T collects feesfrom foreign carriers are established by agreements between it and foreign carriers,and can be affected by limits set by foreign telecommunications regulators,especially the U.S. Federal Communications Commission (or FCC). The primarydrivers of the long distance business are the population of Guyanese livingabroad who initiate calls to Guyana, the rate foreign carriers pay GT&T forhandling the incoming international calls, and the number of people in Guyanacapable of receiving international long distance calls, which consist ofwireline telephone customers and all the wireless subscribers in Guyana(including subscribers to competitor wireless service providers). In addition,in recent years, we believe various methods of illegal bypass and alternativeand cheaper media for communication, such as e-mail and text messaging, may havehad a negative impact on both voice traffic and on international long distancerevenues. We have taken a number of measures to counter illegal bypass,including taking action against unlicensed operators in Guyana, introducingspecial outbound call center rates and we are examining automated technicalsolutions as well. GT&T has also recently faced an increased competitiveenvironment for wireless services in Guyana. Digicel’s entry into the Guyanawireless market has significantly increased the competition we face in theGuyana wireless market. Since early 2007, Digicel has used aggressiveoperational and capital spending to gain market share, including promotionalpricing, the use of extensive give-aways and handset subsidies. In turn, wehave countered with our own promotions and accelerated the timing of some ofour capital expenditures on network expansion and upgrades. We believe thatnetwork coverage and quality of service at competitive prices are some of themost important bases on which we compete. This heightened competition hasresulted in higher marketing expense and a decline in market share.

* *

In 2005 and 2006, weentered new businesses and markets through our acquisitions of Commnet andSovernet. These businesses have provided us with new sources of revenues andwith additional growth opportunities. As a result, while GT&T continues torepresent a majority of our revenues and profits, its relative contribution toour consolidated revenues and consolidated net income has declined in recent years.For the quarters ended March 31, 2007 and 2008, GT&T generatedapproximately 60% and 55%, respectively, of our consolidated revenues and 60%and 49%, respectively, of our consolidated net income. Commnet generatedapproximately 63% and 74% of our wireless revenue for the first quarter of 2007and 2008, respectively. Sovernet generated approximately 33% and 30% of ourlocal telephone and data revenue for the three months ended March 31, 2007and 2008. We are actively evaluating addtional acquisition opportunities ofbusinesses that meet our return on investment and other acquisition criteria.

 

**RecentDevelopments**

** **

*GuyanaOperations.*     Since 2001, theGovernment of Guyana has stated its intention to introduce additionalcompetition into Guyana’s telecommunications sector, including conductingformal discussions with GT&T in 2002 regarding this matter. Most recently,in February and March 2008, at the request of the Government,GT&T met with high-ranking members of the Government to discuss potentialmodifications of GT&T’s exclusive right to offer international voice anddata services. We believe that such competition is precluded by the exclusivityprovisions of our license, which has a stated expiration in December 2010and is renewable for an additional 20 year term at our option.

 

We believe that any early termination of ourexclusivity would require our consent and appropriate compensation to GT&T,including but not limited to, an adjustment of service rates to reflect thereal economic cost to GT&T of providing such services. Further, we believethat certain modifications to the legal and regulatory regime governing thetelecommunications market sector in Guyana would be needed, as well as thesatisfactory resolution of certain long-standing claims between us and theGovernment relating to certain tax and other matters (as described inNote 12 to the 2007 Form 10-K), for us to consider voluntarilyrelinquishing GT&T’s rights by law and contract to be the exclusiveprovider of international voice and date services in Guyana. Althoughdiscussions are currently in preliminary stages and are ongoing, we have beenopen about our willingness to forego renewal of our international exclusivityrights in 2010 as part of an overall settlement and agreement, although theGovernment has indicated to us a desire to introduce competition ininternational services in late 2008.

 

At this time, we do not know if there will be anyregulatory developments in Guyana that will have the effect of terminating orlimiting our exclusive license, and if so, the timing of any such developmentsand whether they would be

 

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pursuant to an agreement between us and the Government. Other thanentering into such an agreement on terms acceptable to us, we would seek toenforce GT&T’s rights by law and contract to be the exclusive provider ofinternational voice and date services in Guyana. Although we believe that wewould be entitled to damages for any involuntary termination of that license, wecannot guarantee that we would prevail in any court or arbitration proceeding. 

 

We are highly dependent on GT&T for a significantportion of our revenues and profits. For the three months ended March 31,2008 approximately 55% of our consolidated revenue and approximately 49% of ourconsolidated net income, respectively, were generated by GT&T. Ourinternational long distance revenues form GT&T have accounted forapproximately 28% of our consolidated revenue during the three months ended March 31,2008. As of March 31, 2008, we have invested approximately$280 million in Guyanese telecommunications infrastructure. A loss ofexclusivity on international voice and data services would result in areduction in the international call traffic that we handle and could alsoresult in a decline in international calling rates and termination fees. Anymodification, early termination or other revocation of the exclusivityprovisions of our license could adversely affect a majority of our revenues andprofits and diminish the value of our investment in Guyana. See “RiskFactors—Our exclusive license to provide local exchange and long distancetelephone services in Guyana is subject to significant political and regulatoryrisk” in our 2007 Form 10-K.

 

*CommnetTransaction.*    In December 2007,Commnet completed the sale of 59 base stations, along with spectrum licenses,in two Midwestern states for total consideration of approximately$17.0 million and recorded a pre-tax gain of $5.0 million. At thesame time, Commnet entered into an agreement with this carrier to purchasespectrum, lease additional spectrum and build a network in rural areas in threeother states. As of May, 2008, this new network consists of approximately 70base stations, and includes a long-term roaming agreement with this carrier,Commnet committed to complete the new network build by March 31, 2008. Theagreement also provides the carrier with a purchase option on the new basestations exercisable beginning in 2010 through 2012 at a predetermined priceeach year. The purchase price consideration reduces each option year and wasdetermined based on estimates of what would be needed to provide a reasonablereturn on our investment and is intended to be reflective of the then fairvalue of the base stations. While we anticipate continued overall growth fromour domestic rural wireless network over the long-term, this sale representedapproximately 24% of Commnet’s 2007 revenue and thus, we expect that the neteffect of these two transactions in the short-term will negatively impactCommnet’s revenue growth due to lower expected traffic at the new sites. Theextent of this effect depends, in part, on the ramp up of traffic on thosesites.

 

*BDC.*    OnMay 2, 2008, we announced that we had been notified by BDC that approximately$16.5 million in shares of BDC’s common stock was tendered by shareholderspursuant to BDC’s self-tender offer, which expired on April 30, 2008. BDCnotified participating shareholders of its acceptance of the tendered sharesand the transaction, which has received all governmental, board and shareholderapproval, is expected to close during May 2008. ATN did not tender any sharesfor repurchase, and, as a result of the transaction, will increase its holdingsfrom 43% to approximately 58% of BDC’s outstanding common stock.  While BDC had initially expected to fund therepurchase of tendered shares through a combination of cash on hand and bankborrowings, we currently expect to loan BDC the funds to repurchase theshares.  The loan would be up to $17.0million and sourced from our cash on hand. 

 

Upon completion ofthe tender offer, BDC’s option, which would have been exercisable in July 2008,to repurchase from us all of our equity interest in BDC, will be replaced withour right, exercisable in May 2013, to purchase all of BDC’s then outstandingcommon stock.  In the event we do notexercise that right, BDC will then have the right to purchase all of our equityinterest in BDC.  

 

We currentlyaccount for our investment in BDC using the equity method of accounting butwill begin to consolidate the results of operations of BDC upon the completionof the tender offer.  For the year endedDecember 31, 2007, BDC generated $24.8 million of revenues. 

 

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**Results of Operations**

 

***Three Months EndedMarch 31, 2007 and 2008***

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** | **Amount of  Increase** | ** ** | **Percent****Increase** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| ** **                                                                                               | ** ** | **2007**                                         | ** ** | **2008**                     | ** ** | **(Decrease)**          | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                               | ** ** | **(In thousands)**                          | ** ** |
| **REVENUE:**                                                                                             |       |                                             |       |                         |       |                    |       |   |   |
| Wireless                                                                                                 |       | $                                                | 18,704     |                         | $          | 19,753                  |       | $ | 1,049 |   | 5.6 | % |
| Local telephone  and data                                                                                |       | 11,067                                           |       | 12,246                       |       | 1,179                   |       | 10.7 |   |
| International  long distance                                                                             |       | 13,171                                           |       | 12,556                       |       | (615                    | )          | (4.7 | ) |
| Other                                                                                                    |       | 978                                              |       | 1,075                        |       | 97                      |       | 9.9 |   |
| Total revenue                                                                                            |       | 43,920                                           |       | 45,630                       |       | 1,710                   |       | 3.9 |   |
| **OPERATING  EXPENSES:**                                                                                 |       |                                             |       |                         |       |                    |       |   |   |
| Termination and  access fees                                                                             |       | 6,560                                            |       | 7,588                        |       | 1,028                   |       | 15.7 |   |
| Internet and  programming                                                                                |       | 849                                              |       | 899                          |       | 50                      |       | 5.9 |   |
| Engineering and  operations                                                                              |       | 5,764                                            |       | 5,856                        |       | 92                      |       | 1.6 |   |
| Sales and  marketing                                                                                     |       | 5,096                                            |       | 2,674                        |       | (2,422                  | )          | (47.5 | ) |
| General and  administrative                                                                              |       | 5,850                                            |       | 5,882                        |       | 32                      |       | 0.5 |   |
| Depreciation and  amortization                                                                           |       | 6,501                                            |       | 7,077                        |       | 576                     |       | 8.9 |   |
| Gain on  disposition of long-lived assets                                                                |       | (133                                             | )          | —                       |       | 133                     |       | 100.0 |   |
| Total operating  expenses                                                                                |       | 30,487                                           |       | 29,976                       |       | (511                    | )          | (1.7 | ) |
| Income from  operations                                                                                  |       | 13,433                                           |       | 15,654                       |       | 2,221                   |       | 16.5 |   |
| **OTHER  INCOME (EXPENSE):**                                                                             |       |                                             |       |                         |       |                    |       |   |   |
| Interest expense                                                                                         |       | (225                                             | )          | (653                         | )          | (428                    | )          | (190.2 | ) |
| Interest income                                                                                          |       | 594                                              |       | 569                          |       | (25                     | )          | (4.2 | ) |
| Other income  (expense), net                                                                             |       | 254                                              |       | 225                          |       | (29                     | )          | (11.4 | ) |
| Other income  (expense), net                                                                             |       | 623                                              |       | 141                          |       | (482                    | )          | (77.4 | ) |
| **INCOME  BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF  UNCONSOLIDATED AFFILIATES** |       | 14,056                                           |       | 15,795                       |       | 1,739                   |       | 12.4 |   |
| Income taxes                                                                                             |       | 6,664                                            |       | 7,390                        |       | 726                     |       | 10.9 |   |
| **INCOME  BEFORE MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                |       | 7,392                                            |       | 8,405                        |       | 1,013                   |       | 13.7 |   |
| Minority  interests, net of tax                                                                          |       | (949                                             | )          | (1,001                       | )          | (52                     | )          | (5.5 | ) |
| Equity in  earnings of unconsolidated affiliates, net of tax                                   |       | 455                                              |       | 463                          |       | 8                       |       | 1.8 |   |
| **NET  INCOME**                                                                                          |       | $                                                | 6,898      |                         | $          | 7,867                   |       | $ | 969 |   | 14.0 | % |

 

*Wirelessrevenue.* Wireless revenue includes wholesale voice anddata roaming revenue from our rural U.S. operations and retail wirelessrevenues generated in Guyana, including airtime and activation fees.

 

Wireless revenue increased to $19.8 million for thethree months ended March 31, 2008 from $18.7 million for the three monthsended March 31, 2007, an increase of $1.1 million, or 6%. Notwithstandingthe sale of 59 base stations during the fourth quarter of 2007, our rural U.S.business increased its revenues by $2.7 million, or 23%, to $14.5 million from$11.8 million. The increase in revenue from our U.S. wireless business was dueprimarily to continued deployment of additional GSM and CDMA wireless basestations which generated growth in minutes of use and increased data and internationalroaming revenue.  Also included in thisincrease was $0.8 million of switching fees related to the 59 base stationsthat were sold. As of March 31, 2008 a total of 354 base stations weredeployed  as compared to 278 basestations as of March 31, 2007. Of the total base stations, 328 were GSMand CDMA base stations as of March 31, 2008, as compared to 229 GSM andCDMA base stations as of March 31, 2007. Our rural wireless revenue alsoincreased as a result of growth in voice and data traffic (minutes) at existingsites and growth in data roaming revenue and international roaming revenue. Theincrease in wireless revenue from our rural U.S. operations was partiallyoffset by a decline in wireless revenue in Guyana. As discussed previously, alarge regional wireless operator launched its wireless service during the firstquarter of 2007 with aggressive marketing campaigns and handset subsidies.  This decline in revenue in the first quarterof 2008 reflects the continued impact of that competition, a decrease in ratesand the introduction of per second billing in March 2007 for all

 

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wireless calls. This additional competition in Guyana,caused our wireless subscribers  todecrease by 9,000, or 3%, from 310,000 subscribers as of March 31, 2007 to301,000 subscribers as of March 31, 2008, respectively. These factors  resulted in a $1.7 million decrease inGT&T’s wireless revenue from $6.9 million during the first quarter of 2007to $5.2 million during the same period of 2008. All of GT&T’s wirelesssubscribers were GSM/GPRS subscribers as of March 31, 2008 as compared to262,000 as of March 31, 2007.

 

We expect that wholesale wireless revenue from ourrural U.S. network will continue to increase in 2008 as we continue to expandour GSM and CDMA networks and as minutes of use continue to grow on ourexisting sites. This may be offset, in part, by scheduled and negotiatedreductions in rates. In our retail wireless business, we expect that thenetwork capacity and coverage we have added will lead to increased traffic overtime, although competitive pressures in the past year have caused a decline inour subscriber base and may reduce expected growth or even cause a decline.

 

*Local telephone and datarevenue.*Local telephone anddata revenue is generated by our wireline operations in Guyana, our integratedvoice and data operations in New England, and our data services in the U.S.Virgin Islands. This revenue includes basic service fees, measured service revenue,and internet access fees, as well as installation charges for new lines,monthly line rental charges, long distance or toll charges (excludinginternational long distance charges in Guyana), maintenance and equipmentsales.

* *

Local telephone and data revenue increased by $1.1million, or 10%, to $12.2 million for 2008 from $11.1 million for 2007. Theincrease is primarily attributable to growth in GT&T’s access lines inGuyana from approximately 123,000 lines as of March 31, 2007 toapproximately 134,000 lines as of March 31, 2008 (an increase of 9%),increased interconnect fees, growth in broadband data customers in Guyana andcontinued strong growth in wireless broadband customers in the U.S. VirginIslands.  While Sovernet continues to addbusiness customers for its voice and data services and improve profitability,its overall revenue remains largely unchanged because of the decline in itsresidential data business, particularly its dial-up internet services.  In future periods, we anticipate that localtelephone and data revenue will increase modestly as a result of network andsubscriber and access line growth in Guyana, the U.S. Virgin Islands and NewEngland.

 

*International long distance revenue.*International long distance revenue is generated by international telephonecalls into and out of Guyana and does not include international long distancerevenue generated by our other operations. Inbound traffic, which made up 85%of all international long distance traffic and more than 70% of international longdistance revenue for the three months ended March 31, 2008, is settled inU.S. dollars.

 

International longdistance revenue was $12.6 million during the first quarter, a decrease of $0.6million, or 5%, from $13.2 million in 2007. This decrease was primarily aresult of certain non-recurring events during the first quarter of 2007, suchas the run up to Guyana’s hosting of Cricket World Cup matches and the RioGroup Summit, which helped drive traffic volumes to unexpected levels.  The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license islikely to negatively impact this revenue in the future.  We are also subject to illegal bypass viainternet calling and compete against alternative and cheaper media forcommunication, such as e-mail and text messaging. These other modes ofcommunication may cause a decline in both voice traffic and in internationallong distance revenues in future periods, although we may see a slight increasein traffic and revenues if we are effective in combating illegal bypass.

 

*Otherrevenue*.Other revenue represents revenue from digital television services in the U.S.Virgin Islands, which increased 10% to $1.1 million for 2008 from $1.0 millionfor 2007. The increase in television services was a result of a 5% increase intelevision subscribers. Our growth in revenue from our wireless digitaltelevision services is expected to slow in the future as a result of minimalanticipated future subscriber and market share growth within our currentlyexisting geographic footprint.

 

*Termination and access feeexpenses*. Termination andaccess fee expenses are charges that we pay for voice and data transportcircuits (in particular, the circuits between our rural wireless sites and ourswitches), internet capacity and other access fees we pay to terminate ourcalls.

* *

*Termination and access fees increased by $1.0 million, or15%, from $6.6 million to $7.6 million from 2007 to 2008, respectively as aresult of  increased traffic (minutes) atCommnet and GT&T. These expenses are expected to increase*

 

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*in future periods, but remain fairlyconsistent as compared to their related revenues, as our rural wireless andCLEC operations in Vermont expand.*

* *

*Internet and programmingexpenses.*Internet andprogramming expenses include internet connectivity charges and digitaltelevision programming.

* *

*Internet and programming expenses increased modestly from$0.8 million in 2007 to $0.9 million in 2008. This increase was primarily fromthe growth in our broadband data and television subscribers in the U.S. VirginIslands. We expect that internet and programming expenses will remain fairlyconsistent as a percentage of related revenues in the near future.*

* *

*Engineering and operationsexpenses.*Engineering andoperations expenses include the expenses associated with developing, operating,supporting and expanding our networks, including the salaries and benefits paidfor employees directly involved in the development and operation of ournetworks.

* *

Engineering and operations expenses increased by $0.1million, or 2%, from $5.8 million to $5.9 million for 2007 to 2008,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States and Guyana. We expect that engineeringand operations will continue to increase to further support those networks.

 

*Sales and marketingexpenses.*Sales, marketingand customer service expenses include salaries and benefits we pay for sales personnel,customer service expenses, sales commissions and the costs associated with thedevelopment and implementation of our promotion and marketing campaigns.

* *

Sales and marketing expenses decreased by $2.4million, or 47%, from $5.1 million to $2.7 million from 2007 to 2008,respectively. During the first quarter of 2007, GT&T incurred an unusuallyhigh level of sales and marketing costs as a response to increased wirelesscompetition, including wireless handset promotions, increased advertising andhigher sales commissions.  In 2008,GT&T’s sales and marketing expenses returned to a lower level.  While we do not think that these expenses arelikely to return to first quarter 2007 levels, it is hard to predict changes inthe competitive environment and therefore there may be large fluctuations inthese expenses in future periods.

 

*General and administrativeexpenses.*General andadministrative expenses include salaries, benefits and related costs forgeneral corporate functions, including executive management, finance andadministration, legal and regulatory, facilities, information technology andhuman resources.

* *

*General and administrative expenses remained at $5.9 millionfrom 2007 to 2008.  We expect general andadministrative expenses to increase in the future to support our growth butremain fairly consistent as compared to our consolidated revenues.*

* *

*Depreciation and amortizationexpenses.* Depreciation and amortization expenses representthe depreciation and amortization charges we record on our property andequipment and on our intangible assets.

 

Depreciation and amortization expenses increased by$0.6 million, or 9%, from $6.5 million to $7.1 million for 2007 and 2008,respectively. The increase is primarily due to the addition of fixed assets fromour network expansion in our rural U.S. wireless business and Guyana. We expectthat depreciation and amortization expenses will increase in the near-term,because of continued capital expenditures to expand our networks.

 

*Gain on disposition of long-livedassets.* During thefirst quarter of 2007, our rural U.S. wireless operations sold certain assetsfor proceeds of $0.3 million, resulting in a gain on such sale of $0.1 million.

 

*Interest expense.*Interest expense represents interest incurred on our outstanding debt includingour $50.0 million term loan as well any outstanding amounts under our $20.0million revolving line of credit facility.

 

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Interest expense increased from $0.2 million for 2007 to $0.7 millionfor 2008. The increase in interest expense was due to a patronage creditadjustment received from our senior lender in the first quarter of 2007. We hadno outstanding borrowings under our line of credit during the first quarters of2007 and 2008.

 

*Interest income*.Interest income represents interest earned on our cash, cash equivalent andmarketable securities.

 

Interest income remained constant at $0.6 million for first quarters of2007 and 2008.  The increase in our cash,cash equivalents and marketable securities from the first quarter of 2007 to2008 was offset by a decrease in the interest rates that we received on suchcash and investments.

 

*Other income (expense).*Otherincome (expense) represents miscellaneous non-operational income we earned, orexpenses we incurred, including management fees received from BDC and otherunconsolidated affiliates. Other income decreased from $0.3 million in 2007 to$0.2 million in 2008 as a result of a decrease in management fees from BDC.  We expect other income to decrease in thefuture as the management fee received by BDC will be eliminated uponconsolidation of BDC’s results of operations.

 

*Incometaxes.***Incometaxes represent taxes we pay on our net taxable income.

 

The effective tax ratewas 47% for 2007 and 2008.  Income taxexpense  includes tax at the statutoryU.S. federal and state income tax rates as well as the Guyanese income taxes inexcess of the statutory U.S. income tax rates. The effective tax rate isimpacted by the receipt of foreign dividends and by the amortization of adeferred tax asset, relating to differences between book and tax basis of fixedassets, which was recorded in a prior period. For the three months ended March 31,2008, the effective tax rate was negatively impacted by an increase in foreigndividends as compared to the same period in 2007.  We expect that our effective tax rate will bereduced over time if we are able to continue reducing losses in the US VirginIslands and grow taxable income at our newer U.S. operations. Consolidation ofthe results of BDC will also reduce this tax rate.

 

*Minorityinterests.*Minorityinterests consists of the Guyana government’s 20% interest in GT&T, aminority shareholder’s 4% interest in Sovernet and other minority shareholders’interests in certain consolidated subsidiaries of Commnet. Minority interestsincreased from $0.9 million to $1.0 million for 2007 and 2008,respectively.  We expect minorityinterest to increase and include minority shareholders’ approximate 42% equityinterest in BDC beginning in the second quarter of 2008 following consolidationof BDC’s results of operations.

 

*Equityin earnings of unconsolidated affiliates.* Equity in earningsof unconsolidated affiliates includes our share of the earnings of BDC as wellas our share of the earnings of Commnet’s unconsolidated affiliates. Equity inearnings of unconsolidated affiliates was unchanged at $0.5 million for 2007and 2008, respectively. We expect equity in earnings of unconsolidatedaffiliates to decrease following the consolidation of BDC in the second quarterof 2008.

 

*Net income.*As aresult of the above factors, net income increased by $1.0 million or 14% from$6.9 million for 2007 to $7.9 million for 2008. On a per share basis, netincome increased from $0.46 per basic and $0.45 per diluted share to $0.52 perbasic and $0.51 per diluted share from 2007 to 2008, respectively.

 

*Segmentresults.*We have four material operating segments, which wemanage and evaluate separately: (1) Integrated Telephony — International; (2) IntegratedTelephony — Domestic; (3) Wireless Television and Data; and (4) RuralWireless. Segment results are set forth in Note 9 “Segment Reporting” to theConsolidated Financial Statements included in this Report.

 

**Regulatory and Tax Issues**

 

We are involved in a number of regulatory and taxproceedings**.**See Note 11 to theConsolidated Financial Statements included in this Report. A material andadverse outcome in one or more of these proceedings could have a materialadverse impact on our financial condition and future operations.

 

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**Liquidity and CapitalResources**

 

We have met our operational liquidity needs through acombination of cash on hand and internally generated funds and have fundedcapital expenditures and acquisitions with a combination of internallygenerated funds, cash on hand and borrowings under our credit facility.

 

***Usesof Cash***

 

*Capital Expenditures.*A significant use of our cash has been on capitalexpenditures for expanding and upgrading our networks. For the three monthsended March 31, 2007 and 2008, we spent approximately $8.9 million and$11.6 million on capital expenditures, respectively.  Of the $11.6 million of 2008 capitalexpenditures, we spent approximately $7.8 million expanding Commnet’s networkby increasing the number of GSM and CDMA base stations as well as switching andcell site equipment required to expand our geographic coverage and technicalcapabilities. In addition, approximately $3.5 million was incurred expandingthe capacity and coverage of our wireline and wireless network in Guyanabringing the total amount invested in our Guyanese telecommunicationsinfrastructure to approximately $280 million. We also spent $0.2 million atSovernet and expanded our service areas and switch capabilities.  In addition, during the first quarter of2008,  we were awarded the right toacquire, for $3.0 million, certain spectrum in connection with ourparticipation  in the FCC’s auction (FCCAuction No. 73) of 700 MHz spectrum being re-claimed by the FCC from thebroadcast industry and sold by the FCC to the wireless industry.  This amount is included in Other Assets inour Consolidated Balance Sheet as of March 31, 2008; it will be reclassedto Licenses, and considered a capital expenditure, upon the finalization ofsuch award, scheduled to occur during the first quarter of 2009.

* *

We are continuing to invest in expanding our networksin Guyana, Commnet and Sovernet and expect to incur capital expendituresbetween $38 million and $45 million, with approximately two-thirds used inconnection with Commnet’s network expansion during the year ended December 31,2008. We expect to fund these expenditures from cash generated from ouroperations and $17.0 million of proceeds from the sale of 59 sites which closedat the end of 2007.

 

*Acquisitions and Investments.*We have funded our recentacquisitions with a combination of cash on hand and borrowings under our $70million credit facility.

* *

*During the quarter ended March 31, 2007, we purchasedthe remaining 5% equity interest in Commnet for $6.5 million and 21,000 sharesof our common stock in satisfaction of our obligation (and in accordance withour right) under and consistent with the terms of the agreement entered into inconnection with our acquisition of Commnet in September 2005. We fundedthis purchase with cash on hand and the reissuance of shares held in ourtreasury.*

* *

*In connection with BDC’s self-tender offer expected to closein the May of 2008, we expect to enter into an agreement to loan BDC up to$17.0 million from cash on hand to fund this transaction.*

* *

*We continue to explore opportunities to acquirecommunications properties or licenses in the Caribbean, the United States andelsewhere. We also explore opportunities to substantially expand our existingnetworks in the United States and the Caribbean including the likely buildoutof a new fiber optic cable to Guyana. Such acquisitions may require externalfinancing. While there can be no assurance as to whether, when or on what termswe will be able to acquire any such businesses or licenses, such acquisitionsmay be accomplished through the issuance of shares, payment of cash orincurrence of debt.*

* *

*Dividends.*We use cash on hand to make dividend payments to ourcommon stockholders when declared by our Board of Directors. For the threemonths ended March 31, 2008, our dividends to our stockholdersapproximated $2.5 million (which reflects dividends paid on January 17,2008). We have paid quarterly dividends for the last 38 fiscal quarters.

 

*Stock Repurchase Plan*. Our Board of Directors approved a $5.0 millionstock buyback plan in September 2004 pursuant to which we have spent todate $916,130 repurchasing common stock. Although we have not made additionalrepurchases of common stock under this plan in more than two years, we mayrepurchase shares at any time, depending on market conditions, our availablecash and our cash needs.

 

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***Sourcesof Cash***

 

*Total Liquidity at March 31,2008*. As of March 31,2008, we had approximately $74.6 million in cash and cash equivalents, anincrease of $3.4 million from the December 31, 2007 balance of $71.2million. In addition, as of March 31, 2008, we had $3.3 million in cashrestricted for the purpose of acquiring equipment as well as $5.3 million in short-termmarketable securities.  We believe ourexisting cash balances and other capital resources, including the $20.0 millionavailable under our revolving line of credit included in our credit facility,are adequate to meet our current operating and capital needs.

* *

*Cash Generated byOperations.*Cash provided byoperating activities was $16.2 million for the three months ended March 31,2008 compared to $13.5 million for the three months ended March 31, 2007primarily as a result of our increased net income.

 

***Credit Facility.***    On September 15,2005, Atlantic Tele-Network entered into a Credit Agreement with CoBank, ACBproviding for a credit facility consisting of a $50 million term loan anda $20 million revolving credit facility. Under the term loan, repaymentsof principal are deferred until the maturity of the loan on October 31,2010. Interest on the term loan is payable on a quarterly basis at a fixedannual interest rate of 5.85%. Because CoBank is a cooperative financialinstitution, we expect to receive patronage payments annually, and at the endof the term, from CoBank which reflect our portion of CoBank’s profits, if any.These payments, if received, are expected to reduce our effective interestexpense on the term loan.

 

***FactorsAffecting Sources of Liquidity***

 

*Internally Generated Funds.*    Thekey factors affecting our internally generated funds are demand for ourservices, competition, regulatory developments, economic conditions in themarkets where we operate our businesses and industry trends within thetelecommunications industry. For a discussion of tax and regulatory risks inGuyana that could have a material adverse impact on our liquidity, see “Business—RiskFactors—Risks Relating to Our Wireless and Wireline Services in Guyana” in our2007 Form 10-K, “—Regulation of Our GT&T Subsidiary” in our 2007 Form 10-Kand Note 9  to the ConsolidatedFinancial Statements included in this Report.

 

*Guyana—U.S.Foreign Currency Exchange.*    Historically,the Guyana dollar has been considerably devalued relative to the U.S. dollar.The current exchange rate is approximately $205 Guyana dollars to $1 U.S.dollar. We use U.S. dollars to make GT&T capital expenditures, to paycertain GT&T liabilities and to value our GT&T assets for the purposeof making our Guyanese rate of return calculation. Unfavorable changes in theGuyana dollar- U.S. dollar exchange rate would reduce our purchasing power inthese areas. The continued expansion of GT&T’s network is dependent uponthe ability of GT&T to purchase equipment with U.S. dollars. The functionalcurrency of GT&T for accounting purposes is the U.S. Dollar.

 

While currently a significant portion of GT&T’srevenues are transacted in U.S. dollars, this circumstance could change in thefuture. As a result of the growth of GT&T’s local wireless and wirelineoperations, negotiations with the Government of Guyana and the exclusivityprovision of our license and the general trend toward lower international settlementrates, it is likely that an increasing portion of GT&T’s revenues will beearned in Guyanese currency. While there are no legal restrictions on ourconversion of Guyanese currency into U.S. dollars or other hard currencies, oron the expatriation of Guyanese currency or foreign currency from Guyana, thereare risks associated with the conversion of Guyanese dollars to U.S. dollarsdue to limited liquidity in the Guyana foreign currency markets. This limitedliquidity has not prevented us from converting Guyanese currency into U.S.dollars within a given three month period or from converting at a price thatreasonably approximates the reported exchange rate.

 

While we believe that GT&T has, and will continueto have, adequate cash flows denominated in U.S. currency to meet its currentoperating, debt service and capital requirements, there can be no assurancethat GT&T will be able to convert its Guyana currency earnings into theU.S. currency needed to meet such obligations. As of March 31, 2008, we had$9.0 million of cash held in Guyanese dollars. See “Quantitative andQualitative Disclosures about Market Risk.”

 

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*Restrictions Under Credit Facility.***Our credit facility contains four financial tests withwhich Atlantic Tele-Network must comply:

 

·       atotal leverage ratio (debt to EBITDA) of 2.00 to 1.00 or less;

 

·       adebt service coverage ratio (EBITDA to debt service) of 3.00 to 1.00 or more;and

 

·       anequity to assets ratio of 0.40 to 1.00 or more.

 

In addition, Commnet must comply with a leverage ratiotest (debt of Atlantic Tele-Network and its subsidiaries, net of pledged cash,to EBITDA of Commnet and its subsidiaries) of 5.00 to 1.00. As of March 31,2008, we were in compliance with the covenants of the credit facility.

 

***CapitalMarkets.***   Ourability to raise funds in the capital markets depends on, among other things,general economic conditions, the conditions of the telecommunications industry,our financial performance and the state of the capital markets. In June 2006,the Securities and Exchange Commission declared effective a “universal” shelfregistration statement filed by the Company. This shelf registration statementregistered the potential future offerings by us, from time to time of up to anaggregate of $200 million of our securities, consisting potentially ofcommon stock, debt securities, and other equity and convertible securities andcombinations of the foregoing. Following our July 2006 equity offeringwhich was conducted pursuant to the shelf registration statement, we haveapproximately $150 million of securities registered for potential futureofferings.

 

***Inflation***

 

We do not believe that inflation has had a significantimpact on our consolidated operations in any of the periods presented in theReport.

 

***RecentAccounting Pronouncements***

 

EffectiveJanuary 1, 2008, we implemented Statement of Financial Accounting StandardNo. 157, *Fair Value Measurement*(“SFAS 157”), for our financial assets and liabilities that arere-measured and reported at fair value at each reporting period, andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually. In accordance with the provisions of FASP staffposition No. FAS 157-2, *EffectiveDate of FASB Statement No. 157,*we have elected to deferimplementation of SFAS 157 as it relates to our non-financial assets andnon-financial liabilities that are recognized and disclosed at fair value inthe financial statements on a nonrecurring basis until January 1, 2009. Weare evaluating the impact, if any, this Standard will have on our non-financialassets and liabilities.

 

Theadoption of SFAS 157 to our financial assets and liabilities andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually did not have a material impact on our financialresults.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure certain financial instruments and othereligible items at fair value when the items are not otherwise currentlyrequired to be measured at fair value. We adopted SFAS 159 effective January 1,2008.  Upon adoption, we did not elect the fair value option for anynew items within the scope of SFAS 159 and, therefore, the adoption of SFAS 159did not have an impact on our consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R addresses the recognition andaccounting for identifiable assets acquired, liabilities assumed, andnoncontrolling interests in business combinations. SFAS 141R also establishesexpanded disclosure requirements for business combinations. SFAS 141R iseffective for us on January 1, 2009, and we will apply SFAS 141Rprospectively to all business combinations subsequent to the effectivedate.  We are currently evaluating theimpact that the adoption of SFAS 141R will have on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements - an amendment of ARB No. 51*(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the 

 

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noncontrolling interest in a subsidiary and for the deconsolidation ofa subsidiary.  SFAS 160 requires that noncontrolling interests insubsidiaries be reported in the equity section of the controlling company’sbalance sheet. It also changes the manner in which the net income of thesubsidiary is reported and disclosed in the controlling company’s incomestatement. SFAS 160 is effective for fiscal years beginning after December 15,2008. We are currently evaluating the impact that the adoption of SFAS 160 willhave on our consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities - an amendment of FASB Statement No. 133*(“SFAS 161”).  SFAS 161 amends and expands the disclosurerequirements of Statement 133 to provide a better understanding of how and whyan entity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for, and their effect on an entity’s financialposition, financial performance, and cash flows.  SFAS 161 iseffective for fiscal years beginning after November 15, 2008.  As of March 31, 2008, we did not haveany derivative instruments and do not expect that the adoption of SFAS 161 willhave any impact on our consolidated financial statements.

 

**Item 3.Quantitative and Qualitative Disclosures about Market Risks**

 

Although a significantportion of our Guyana subsidiary’s revenues and expenditures are currentlytransacted in U.S. dollars, the results of future operations neverthelessmay be affected by changes in the value of the Guyana dollar. From February 1991until early 1994, the Guyana dollar remained relatively stable at the rate ofapproximately $125 to the U.S. dollar. In 1994 the Guyana dollar declined invalue to approximately $142 to the U.S. dollar. It remained relatively stableat approximately that rate through 1997. From December 31, 1997, through December 31,1998 the Guyana dollar further declined in value to approximately $180 to theU.S. dollar and it remained relatively stable until late 2003. In the fourthquarter 2003, the Guyana dollar declined in value to approximately $195 to theU.S. dollar and to approximately $205 during the first quarter of 2004. Sincethe first quarter of 2004 through March 2008, the value of the Guyanadollar has remained at $205 Guyana dollars to one U.S. dollar.

 

A substantial majority ofour consolidated cash balances are kept in U.S. dollar denominated short terminvestments. GT&T generally endeavors to maintain a balance between itsGuyana dollar cash deposits and local receivables which are denominated inGuyana dollars and its local tax and other payables which are also denominatedin the Guyana dollar. As of March 31, 2008, GT&T maintained $9.0million of its cash balances in Guyana dollars.

 

GT&T’s functionalcurrency has been the U.S. dollar because a significant portion of GT&T’srevenues and expenditures have been transacted in U.S. dollars. Accordingly, inour view, GT&T is currently entitled to its agreed upon minimum 15% returnon rate base computed in U.S. dollars on a U.S. dollar historical cost ratebase and therefore devaluations of the Guyana dollar should have had nolong-term impact on the value of GT&T’s earnings in U.S. dollars. TheGuyana Public Utility Commission has neither approved nor disapproved of ourposition. Moreover, with the potential for competition in internationalservices in the future and the increases that GT&T hopes to have in localrevenue, it is possible that the Guyana dollar will become GT&T’sfunctional currency at some time in the future. See “Management’s Discussionand Analysis of Financial Condition and Results of Operations” above.

 

We maintain a portion ofour cash and cash equivalents in short-term financial instruments that aresubject to interest rate fluctuations. Due to the relatively short duration ofsuch instruments and the fact that we have no variable rate debt, we believethat fluctuations in interest rates will not materially affect our financialcondition or results of operations.

 

**Item 4.Controls and Procedures**

 

*Evaluationof disclosure controls and procedures.*Our management, withthe participation of our principal executive officer and principal financialofficer, evaluated the effectiveness of our disclosure controls and proceduresas of March 31, 2008. The term “disclosure controls and procedures,” asdefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,means controls and other procedures of a company that are designed to ensurethat information required to be disclosed by a company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by acompany in the reports

 

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that it files or submitsunder the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on theevaluation our disclosure controls and procedures as of March 31, 2008,our principal executive officer and principal financial officer concluded that,as of such date, our disclosure controls and procedures were effective at thereasonable assurance level.

 

*Changesin internal control over financial reporting.*There was nochange in the internal control over financial reporting that occurred duringthe three months ended March 31, 2008 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PART II—OTHERINFORMATION**

 

**Item 1. Legal Proceedings**

 

See Note 11 to the Consolidated Financial Statementsincluded in this Report.

 

**Item 1A. Risk Factors**

 

In addition to the other information set forth in thisReport, you should carefully consider the factors discussed in Part I, “Item1A. Risk Factors” in our 2007 Form 10-K, which could materially affect ourbusiness, financial condition or future results. The risks described in our2007 Form 10-K are not the only risks facing our Company. Additional risksand uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

**Item 6.Exhibits**

 

3.1           Restated Certificate ofIncorporation (incorporated by reference to Exhibit 4.1 to the Company’sRegistration Statement on Form S-8 (File No. 333-62416) filed June 6,2001)

 

3.2           Certificate ofAmendment to the Restated Certificate of Incorporation, as filed with theDelaware Secretary of State on August 14, 2006 (incorporated by referenceto Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (File No. 001-12593)filed on August 14, 2006)

 

31.1         Certification of ChiefExecutive Officer pursuant to Rule 13a-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002

 

31.2         Certification of ChiefFinancial Officer pursuant to Rule 13a-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002

 

32.1         Certification of ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2         Certification of ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                   |   | Atlantic Tele-Network, Inc.      |
|------------------------|--------|---------------------------------------|
|                   |   |                                  |
| Date: May 9, 2008 |   | /s/ Michael T. Prior                  |
|                   |   | Michael T. Prior                      |
|                   |   | President and Chief Executive Officer |
|                   |   |                                  |
| Date: May 9, 2008 |   | /s/ Justin D. Benincasa               |
|                   |   | Justin D. Benincasa                   |
|                   |   | Chief Financial Officer and Treasurer |

 

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